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Emerging Markets : End Of An Era As Yeltsin Dies

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The death of former Russian president Boris Yeltsin in April marked the end of an era for Russia. Retrospectives in the Russian press of the country’s first freely elected president focused on the chaos that characterized much of his term, while he was eulogized in much of the West as a hero who laid the groundwork for democracy in post-communist Russia. A few days later the contrast between Yeltsin’s anarchic but relatively democratic philosophy and current president Vladimir Putin’s strongman approach was highlighted in the president’s annual parliamentary address, during which he warned darkly of foreign powers meddling in Russia’s internal affairs and urged parliament to pass legislation to punish so-called political extremists. Putin also again said that he would step down after the end of his term early next year as constitutionally mandated, but most observers believe that he will remain the de facto power behind the throne in Russian politics.

After rising roughly 40-fold over the past eight years, the Russian equity market finds itself in the unusual position of being one of the world’s weakest performers in the year to date, with a small decline since the beginning of the year. A bulging initial and secondary offering pipeline—in Russia and in the emerging markets overall—has absorbed liquidity, with roughly $13 billion raised by Russian companies via public offerings over the past month (as of mid-May) alone.

The rising profile of Russian businesses on the global stage was reflected in the mid-May acquisition of a $1.5 billion stake in Canadian car parts maker Magna by Russian billionaire Oleg Deripaska, who controls Rusal, the world’s largest aluminum company. Just a few weeks earlier it was announced that Deripaska was buying a €1.2 billion stake in Strabag SE, Austria’s largest builder. On another front, in early May Russian miner Norilsk Nickel launched a $4.8 billion takeover bid for nickel producer LionOre, topping a bid by rival global miner Xstrata.